Best Buy (NYSE: BBY ) sure knows how to break in a ridiculous product with a bang.
The consumer electronics giant let the world know about its buyback protection program during the Super Bowl weekend in one of the game's more memorable ads, starring Ozzy Osbourne and Justin Bieber.
Osbourne grows flustered as 4G smartphones become 5G devices in a commercial shoot, so in steps Bieber to pitch 6G handsets.
"Technology moves fast," goes the pitch. "Don't get left behind."
It's a clever ad, but this is still an upsell initiative that is going to confuse Best Buy shoppers. I thought its buyback program was a ridiculous idea a month ago, joking that Best Buy shareholders are the ones in need of protection from obsolescence after a disappointing holiday quarter. I haven't changed my mind.
Let's go over how this goes.
Between now and Saturday, Best Buy is offering the protection for free. It's a no-brainer. Go for it.
Be careful next week, though.
The ugly math of keeping up with technology
At the time of buying a new laptop, tablet, TV, or mobile phone, Best Buy shoppers will have the option of paying between $40 and $350 more for this obsolescence insurance.
Let's say you buy an entry-level iPad for $500. You missed the memo, unaware that the cooler iPad 2 is coming out in two months. You want out. Thankfully, since you paid $570 instead of $500 at the time of purchase, you can just return it to your local Best Buy for $250 in gift certificates during the first six months.
You have to act quickly. That $250 turns into $200 after six months. If you wait a year, Best Buy will only give you $150 as long as it's in decent condition. The payout shrinks to $100 during the final six months of the two-year plan.
This sounds like a bad deal. Surely you can do better through Craigslist or even eBay (Nasdaq: EBAY ) . However, it's an even bigger loser than you may think. You're not getting $250 back for returning a $500 iPad in a couple of months. You paid an extra $69.99 plus tax upfront, so you're really selling it for the equivalent of $180. By August, that $200 rate is more like $130.
Really? You don't think you can earn more than that through third parties (i.e., eBay) with minimal effort? Oh, and remember that you're getting paid in Best Buy currency. This may work out perfectly if you're thinking of trading up on the spot, but if not, it'll be just another unused gift card collecting dust in your billfold.
Every retailer is a swap shop
Don't confuse this ridiculous insurance with the practice of trade-ins, which Best Buy already does for some items.
Trade-ins can even be an effective model. GameStop's (NYSE: GME ) thickest margins come from its used-game sales. How does GameStop stock up on used wares? It offers gamers the ability to trade in older games and systems for money that they turn right around to use on new releases.
GameStop's been doing so well with its trade-in business that it attracted Best Buy, Toys "R" Us, and Amazon.com (Nasdaq: AMZN ) to take a page out of the specialty retailer's playbook and offer video game trade-ins. Yes, even a web-based merchant like Amazon can cash in on secondhand goods.
The buyback program isn't like that at all. It stems from a conscious upcharge decision at the time of original sale. It is a closer fit to the chain's Geek Squad Black Tie Protection, where buyers pay for a set number of years of support and maintenance.
As someone whose first job was a telemarketing gig selling maintenance agreements for Sears in high school, I won't badmouth Best Buy's Black Tie Protection. There are obviously cases where the protection winds up more than paying for itself. However, outside of some select smartphone deals that can potentially be exploited by nimble opportunists, this is the kind of deal where there are better alternatives for nearly every example. Even a charitable donation may make more sense toward the end of these terms!
I won't be right about every transaction. Someone may eventually post a comment about how this service saved them a sweet chunk of change. It will likely be an isolated example. Best Buy isn't offering this unless it believes that it will make more money than it has to dish out.
It's going to be bad news all around for Best Buy. It won't be a popular offering. It will confuse some shoppers and cheapen Best Buy's image to others who may somehow believe that Best Buy is actually reselling these trade-ins as new. It's not, obviously, but it's the pawnshop scent that the retailer will start to emit.
Between pitches for the buyback program and Black Tie Protection, the in-store climate will get as pushy as Circuit City was before it was forced to liquidate. Best Buy has already been losing sales to Amazon.com. Now ex-Best Buy shoppers will have another reason to turn to the Internet for their consumer electronics needs.
I liked the ad. I think Osbourne and Bieber were good self-effacing sports. I just don't like the product for consumers or shareholders.
Will the buyback program work at Best Buy? Share your thoughts in the comment box below.